Texas Gives Tesla the Boot

Tamara Rutter, The Motley Fool |
June 4, 2013

It's official: Tesla Motors has lost a key battle against the Texas Automobile Dealers Association. It appears the electric-vehicle maker won't be able to sell its cars in the Lone Star State after all, because of the state's strict regulations against manufacturer-owned dealerships. This is a huge loss for Tesla, particularly given the sheer size of the Texas market.

Everything's bigger in TexasAs the second largest and second most populous state in the U.S., Tesla can't afford to ignore Texas forever. It's surprising, than, that Tesla's outspoken CEO, Elon Musk, hasn't yet commented on this decision by Texas lawmakers. In April, Musk traveled to Texas to plead Tesla's case for selling its cars directly to consumers in the state.

During his visit, Musk argued, "What we're asking for from the Texas Legislature is really simple -- it's just, let us sell our products directly to the people of Texas like we're able to do in the rest of the country." The Texas Automobile Dealers Association, on the other hand, claimed that allowing Tesla to sell its cars directly to Texas consumers would open the floodgates for other carmakers to sell direct to consumers.

Tesla has fought and won similar battles in other states, including New York, Florida, New Jersey, California, Colorado, Oregon, Washington, and Massachusetts. However, Texas is an important piece of the puzzle for Tesla, as the company strives to transform the car-buying experience in this country. Worse still, Tesla will have to wait until the state's legislature meets again in a general session in 2015 before it can revisit the issue, according to Automotive News.

What now?It will be interesting to see what Musk has to say on this heated topic. Perhaps it will be similar to what he told Forbes in April:

"It is crazy that Texas, which prides itself on individual freedom, has the most restrictive laws in the country protecting the big auto dealer groups from competition. If the people of Texas knew how bad this was, they would be up in arms, because they are getting ripped off by the auto dealers as a result (not saying they are all bad -- there a few good ones, but many are extremely heinous)."

Investors shouldn't have to wait too long to hear from Tesla's CEO. The company is holding its annual shareholder meeting later this afternoon.

Tesla's plan to disrupt the global auto business has yielded spectacular results. But giant competitors are already moving to disrupt Tesla. Will the company be able to fend them off? The Motley Fool answers this question and more in our most in-depth Tesla research available. Get instant access by clicking here now.